Based in Singapore and Hong Kong, the portfolio managers of JPMorgan Asia Growth & Income plc (JAGI) incorporate views from analysts based in nine locations across the Asia Pacific region—and also hit the road to visit companies themselves in search of attractive investments in Asia. 

Insights from Indonesia and Thailand

JAGI’s positions in Bank Central Asia and Bank Mandiri contribute to the portfolio’s long-standing overweight to Indonesia. A recent visit to Jakarta provided an opportunity to meet with government officials and the managements of both banks, which reinforced the theme of macroeconomic stability that supports the investment thesis behind JAGI’s bank positions.

Roughly three-quarters of the Indonesian population is using limited or no banking services, providing significant opportunity for banks to increase their customer penetration. Bank Central Asia now has over 80% market share of low-cost current and savings accounts—the highest in the region. The portfolio managers believe that these strong bank franchises will continue to dominate because they have a better chance at maintaining their profitability; they can be price leaders in lending rates but then choose the best credits in these underpenetrated markets.

JAGI’s lack of exposure to Thailand was confirmed by meetings in Bangkok. Thailand’s 90% household debt to GDP ratio is negatively impacting some businesses, with the negative impact on investor sentiment leading to a stock market derating. The portfolio managers will continue to look for any evidence that the structural issues currently weighing on the Thai market are being addressed, including higher payouts from companies.

Technology and telecom drive positioning in South Korea, Taiwan and Australia

JAGI’s country positioning is primarily a result of underlying stock positioning. That’s exactly the case behind JAGI’s overweight to Australia, where the portfolio has a large position in Telestra, Australia’s largest mobile carrier. The company has a high market share that allows it to increase tariffs and is trading at an attractive valuation.

Although JAGI’s exposure to Taiwan is less than the benchmark, its 12% position in semiconductor manufacturer TSMC is greater than the index weight, reflecting the company’s cutting-edge production of microchips that are helping to drive the growth of artificial intelligence (AI). A recent meeting with the company gave the portfolio managers confidence that TSMC can generate superior returns in the sector compared to many global competitors.

Technology has also contributed to JAGI’s positioning in South Korea. SK Hynix, another semiconductor manufacturer, is focusing on high-bandwidth memory chips that are important for AI. That’s a key reason the company has outperformed Korea’s Samsung, which has not been a strong player in this growing market and is suffering from the weaker demand outside of AI. Samsung’s poor performance is a large contributor to the Korean market’s recent underperformance—it is the only market with negative returns this year. Valuations now look attractive relative to history and other markets in Asia, and the portfolio managers have been adding exposure.

Adjustments in India and China

In contrast to South Korea, the Indian stock market has continued to rally and valuations are now even more expensive compared to its history and the broader Asia region. JAGI has had less exposure to India and tends to own higher quality businesses, which have underperformed.

Responding to the challenge, the investment team has significantly broadened its coverage of Indian equities to around 140 stocks, with an additional 45 in the pipeline. Importantly, many are in areas where coverage had been more limited, such as small and mid cap companies in newer parts of the economy, and industrial and cyclical businesses. In the meantime, revenue and earnings growth in India appears to be starting to slow, despite continued robust real GDP growth. Any correction in the stock market could provide the portfolio managers with opportunities to add new positions.

China’s economy, meanwhile, has not been so robust, but JAGI’s stock selection has helped performance, while the portfolio’s combined exposure to China and Hong Kong is now overweight vs. the benchmark. Having been cautious on ecommerce in China earlier in the year due to weak demand, JAGI portfolio managers increased positions in Tencent and Alibaba as valuations became more attractive, which has recently contributed positively to performance.

Signs of cyclical recovery are emerging in China and stimulus measures to support the property market may have a positive impact on consumer confidence. Much uncertainty remains, however, given the shifting global macroeconomic backdrop.

Performance across markets and cycles

JAGI continues to deliver performance through all types of market environments, beating the MSCI AC Asia ex Japan (NDR) in seven out of the last 10 calendar years. One important change is the addition of Pauline Ng as a third portfolio manager for the trust. Pauline has 20 years of experience in Southeast Asian equities and bottom-up, style agnostic stock picking. The investment team will continue to pursue its strategy of building an all-weather portfolio of high-quality, attractive Asian businesses of all sizes, seeking to generate consistent long-term returns from investing in Asia.